WSJ, National Review Split on Perry's Flat Tax Plan

Wednesday, 26 Oct 2011 12:05 PM

By Neal Asbury

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Two influential conservative publications — The Wall Street Journal and the National Review — diverge in their reviews of Republican presidential candidate Rick Perry’s tax plan. The Journal is largely positive in its editorial, while the National Review largely negative, though both publications include opinions on both sides.

The Journal is happy to see flat tax proposals take center stage in the presidential race, and Texas Gov. Perry’s proposal gives him a chance to regain momentum for his campaign.

“A flatter tax code is both an economic and political reform,” the paper says. “Economically, its lower rates would attract more capital from abroad, encourage more domestic investment, and increase growth and jobs . . . Politically, this would reduce the legal corruption of handing out favors that has soured so many Americans on their government.”

Perry's corporate tax changes “would be beneficial for nearly all American companies,” the Journal editorial states. “He'd cut the corporate income tax rate to 20 percent from 35 percent today, putting it more in line with our global competitors. He'd also move to a territorial tax system, in which companies would no longer have to pay the U.S. rate if they earn that money abroad. This would make it easier for U.S. companies to bring that income home and create jobs in America.”

Although critics complain that a flat tax would lessen the government’s revenue stream, a flat tax actually could increase government revenue by sparking economic growth, the Journal says.

The editorial isn’t happy that Perry wants to keep deductions for mortgage interest, charitable contributions, and state and local taxes even in his optional flat tax. “This is intended to blunt political criticism from powerful lobbies that like their current breaks,” the editorial states.

However, the Journal editorial adds, “The good news is that Mr. Perry and most of his competitors are thinking big, with proposals that will reverse the U.S. slide to high-debt, slow-growth stagnation. The flat tax puts Republicans on the side of private growth and government reform, a potent combination. Perhaps Mr. Perry and his comrades can even coax Mitt Romney to join the party.”

As for the National Review, it says Perry’s plan “reads like a second draft. He has chosen to avoid the political liabilities of a flat tax by forgoing its distinctive advantages of simplicity and low compliance costs. The hybrid tax system he would create would in no important sense be flat, and Perry seems unwilling to spell out the cuts necessary to get spending in rough balance with the amount of revenue it would collect. Republicans should try for something better.”

Like the Journal, the National Review is disappointed to see that Perry’s plan includes deductions for mortgage interest, etc., as part of the flat tax. “It means that under Perry’s plan, Texans would continue to subsidize the political mistakes of Illinois voters,” the editorial states.

“The tax cut seems to have been designed so as to enable Perry to say that his proposal is a ‘flat tax’ while also avoiding one of the political disadvantages of the flat tax: the fact that most versions of it would increase tax payments for many millions of people.”

The magazine is skeptical that Perry’s plan will produce more government revenue. “No detailed analysis of how much revenue the plan would raise has been done, but it seems highly likely that the number would be much lower than under the current system, and lower than Perry’s team is claiming,” the editorial states.

The magazine does compliment some of Perry’s spending ideas. Those include turning Medicaid into block grants for states, raising the eligibility age for Social Security and perhaps Medicare, and converting Medicare into a system of payments for senior citizens to purchase the health coverage of their choice.

“On the subjects he has chosen to tackle — taxes, spending, and regulation — Perry wants to go in the right direction: toward less of each,” the magazine says.

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